Henry Blodget Is Wrong. It is Illegal for a Bank to Lend Themselves into Financial Danger

I will never forget the day that Henry Blodget, owner of Business Insider financial website posted in the comment section that the banks did nothing criminal in the financial crisis. Of course, it is pretty obvious that the banks did illegal deeds in distributing fraudulent AAA mortgage backed securities throughout the world.

But now we have a law enacted in 1989 to punish the Savings and Loans in the S & L scandal. Of course, because fraud on Wall Street is not criminal even though the same fraud would be criminal anywhere else, there is only the ability to file a civil lawsuit against the bankers. So I guess Blodget is technically right, even though it should be a crime to commit these massive financial frauds.

And it would be anywhere else but on Wall Street.

Anyway, the law says that banks cannot seek out mortgage insurance from the GSEs or any government agency like the FHA if they have not made loans that they prove can be paid back. The banks made lots of loans that they knew could never be paid back, on the old payday loan model. And they collected fees that made them flush with cash.

But it is illegal. It is not litigated in criminal court, but it is illegal for banks to make these kind of loans. So I guess thanks to legislators being in the pockets of the big banks, Henry Blodget is half right.

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